HOW CAN WE RECONCILE GREEN AND GROWTH? GREEN GROWTH STRATEGY, EXPERIENCES AND EVIDENCE.

Grégoire Garsous (OECD)

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• Economic cost of climate change is estimated around 0.7% - 2.5% of global GDP in 2060 (OECD, 2015)

• Social cost of air pollution in OECD equivalent to 4% of GDP (OECD, 2014)

• Little doubt that there are benefits of tighter environmental policies (e.g. global action on climate change)

• So, why is it so slow?

Introduction: The economics of green growth

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• Policymakers fear that environmental policies be a constraint on competitiveness

• Some empirical studies point to environmental policies as a reason for the 1970s slowdown in the US (Kozluk & Zipperer, 2014)

• Yet new evidence suggests that environmental policies do not need to hamper growth

Introduction: The economics of green growth

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• Environmental policies do not need to hurt productivity (Albrizio et al., 2014)

Reconciling green and growth

Effect of average EPS tightening on MFP growth

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• Environmental policies do not hurt overall trade (preliminary results from Kozluk & Timiliotis, 2015)

Reconciling green and growth

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• Main lessons from new empirical analysis– Most productive firms/industries gain from

tighter environmental policies– Environmental policies can create incentives

to innovate and improve their products (i.e. Porter Hypothesis? )

– The least productive firms might need to invest more or stop operating

– However, if resources are reallocated to young and innovative firms, overall impact can be positive

Reconciling green and growth

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• Framework policies must encourage growth of innovative firms, new products and ideas…

• Competition: minimise barriers to entry & bias towards incumbents, improve access to financing, promote trade and innovation

• Flexibility: market-based instruments (e.g. pollution taxes) – leave firms the choice how to comply

The challenges of green growth

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The challenges of green growth

• Tighter environmental policies can be designed to minimise anti-competitive barriers (Albrizio et al., 2014)A. World Economic Forum – perceived environmental policy stringency B. Environmental policy stringency proxy (OECD, de jure)

AUS

AUT

BEL

CAN

CHE

CHL

CZE

DEUDNK

ESP

ESTGBR

GRC

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HUN ISR

ITA

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MEX

NLDNOR

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TUR

ZAF

USAIRL

KOR

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ISL

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0,5 1 1,5 2 2,5 3 3,5 4 4,5

Total BEEP indicator

WEF perceived EPS (2012)

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Policies more burdensome to entry and competition

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CHEDEU

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GRCHUN

ITA

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NLD

NOR

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PRT

SVK

SWE

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IRL

KORFRA

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0,5 1 1,5 2 2,5 3 3,5 4 4,5

Total BEEP indicator

OECD EPS(de jure, 2012)

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Policies more burdensome to entry and competition

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• Another challenge is the alignment of other (non-environmental) policies

• In Belgium, a better coordination between fiscal and environmental policies is needed

• “Subsidies” to company cars conflict with objectives of air pollution reduction

• About 6000 deaths from air pollution in Belgium in 2010 (OECD, 2014), one of the poorest population exposure to PM figures in OECD

The challenges of green growth in Belgium: coordination

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The challenges of green growth in Belgium: coordination

• High “subsidies” have increased CO2 emissions of transport (OECD, 2013)

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• Congestion is also a coordination failure among regions in Belgium

• Brussels area bears the costs of suburban commuting

• Other coordination failures, e.g. the strategy for development of renewables

The challenges of green growth in Belgium: coordination

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• Green growth is possible• However, policies design matters a lot• Competition and flexibility to facilitate

adjustment through innovation, adoption, dynamism

• Social policies to smooth adjustment• Coordination crucial for efficient

policies

Concluding remarks

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• OECD (2015): « The economic consequences of climate change, » OECD Publishing

• OECD (2014): « The costs of air pollution: health impacts of road transport, » OECD Publishing

• OECD (2013): « Better use of infrastructures to reduce environmental and congestion costs, » in OECD Economic Surveys: Belgium 2013, OECD Publishing

• Albrizio, S., T. Kozluk and V. Zipperer (2014): « Do environmental policies matter for productivity growth? Insights from new cross-country measures of environmental policies, » OECD Economics Department Working Papers, No. 1776, OECD Publishing

• T. Kozluk and V. Zipperer (2014): « Environmental Policies and Productivity Growth: a critical review of empirical findings, » OECD Economics Department Working Papers, No. 1096, OECD Publishing

• T. Kozluk and C. Timiliotis (2015): « Do environmental policies affect global value chains? A new perspective on the pollution haven hypothesis, » Forthcoming in OECD Economics Department Working Papers

References